The blast targeted worshippers attending a funeral at the mosque.
Although sectarian violence in Iraq has decreased since its height in 2006 and 2007, attacks on Shia are common, with many blamed on Sunni militants.
Tuz Khurmato lies 175km (110 miles) north of the capital, Baghdad, and is populated mainly by ethnic Turkmen.
The town is disputed between the government in Baghdad and ethnic Kurds, who inhabit a semi-autonomous region in the north and claim territory in four other nearby regions.
It was the scene of a shooting in November which left the two sides in an ongoing military standoff.